Precious Metals

     

 

 

Careening from Crisis to Crisis

Back in the old days, homes had fuse boxes. Today, of course, any new house is built with a circuit breaker panel and many older homes have been upgraded at one time or another. However, the fuse is a much more interesting analogy for the monetary system.

 

Electricity for the adventurous. [PT]

Photo via lievielectric.com

 

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Probabilistic Technical Analysis vs. the Mechanics of Arbitrage

We talk about the supply and demand fundamentals every week. We were surprised to see an article about us this week. The writer thought that our technical analysis cannot see what is going on in the market. We don’t want to fight with people, we prefer to focus on ideas. So let us compare and contrast ordinary technical analysis with what Monetary Metals does.

 

April 2017 gold futures contract (black line) vs. spot gold (green line) – click to enlarge.

 

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A Case of Botched Timing, But…

When last we wrote about the gold sector in mid February, we discussed historical patterns in the HUI following breaches of its 200-day moving average from below. Given that we expected such a breach to occur relatively soon, the post turned out to be rather ill-timed. Luckily we always advise readers that we are not exactly Nostradamus (occasionally our timing is a bit better). Below is a chart of the HUI Index depicting the action since the January 2016 bear market low, with lateral support/resistance lines relevant to the recent action.

 

After the HUI turned down from its 200-dma, we thought the red line would hold as support, but it was not to be. However, the area between the two blue lines has provided support, so there is a higher low in place for now, due to the “buy the news” response to the payrolls data and the rate hike. It is a bit difficult to see on this chart, but the advance on Wednesday stopped exactly at the 20-day ma, and the gap up open on Thursday (as we write this) stopped right at the 50-day ma. In spite of its volatility, the HUI is actually quite well behaved in terms of the technical picture, this is to say it often respects support and resistance levels, trend lines and moving averages and is quite amenable to Elliott Wave counts as well – click to enlarge.

 

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Long Term Technical Backdrop Constructive

After a challenging Q4 in 2016 in the context of rising bond yields and a stronger US dollar, gold seems to be getting its shine back in Q1. The technical picture is beginning to look a little more constructive and the “reflation trade”, spurred on further by expectations of higher infrastructure spending and tax cuts in the US, has thus far also benefited gold.

From a technical perspective, there are indications that the low at $1045.40, incidentally printed just ahead of the first Fed hike in December 2015, was significant and now provides medium-term support as indicated by the price channel in the chart below.

 

Gold, long term – long term lateral support was tested in late 2015 in conjunction with a positive RSI divergence – click to enlarge.

 

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Rumor-Mongering vs. Data

The question on the lips of everyone who plans to exchange his metal for dollars—widely thought to be money—is why did silver go down? The price of silver in dollar terms dropped from about 18 bucks to about 17, or about 5 percent.

 

Reportedly silver was already assassinated in the late 19th century… so last week they must have assassinated its corpse. [PT]

Illustration taken from ‘Coin’s Financial School’

 

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Bitcoin Mania

The price of gold has been rising, but perhaps not enough to suit the hot money. Meanwhile, the price of Bitcoin has shot up even faster. From $412, one year ago, to $1290 on Friday, it has gained over 200% (and, unlike gold, we can say that Bitcoin went up — it’s a speculative asset that goes up and down with no particular limit).

 

Bitcoins are a lot less tangible than this picture implies, but they are getting a lot of love recently [PT]

 

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Gold Scarcity Intensifies Further

Last week (a holiday-shortened week, as Monday was President’s Day in the US), the price of the dollar fell. In gold, it fell almost half a milligram to 24.75mg, and prices in silver it dropped 30mg, to 1.7 grams of the white monetary metal.

 

Looks good… and since last week, costs more.

Photo credit: istara

 

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Fundamental Developments

Last week, the prices of the metals mostly moved sideways. There was a rise on Thursday but it corrected back to basically unchanged on Friday.

This will again be a brief Report, as Monday was a holiday in the US.

Below, we will show the only true picture of the gold and silver supply and demand fundamentals. But first, the price and ratio charts.

 

Prices of gold and silver – click to enlarge.

 

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The Technical Picture – a Comparison of Antecedents

We wanted to post an update to our late December post on the gold sector for some time now (see “Gold – Ready to Spring Another Surprise?” for the details). Perhaps it was a good thing that some time has passed, as the current juncture seems particularly interesting. We received quite a few mails from friends and readers recently, expressing concern about the inability of gold stocks to lead, or even confirm strength in gold of late. In light of past experience, such market behavior certainly deserves to be scrutinized. We felt reminded of another occasion though, when a negative divergence prompted a flood of mails to us as well (not every divergence does).

 

The HUI compared to gold. It is a good rule of thumb that positive divergences between the HUI and gold are bullish signals and negative divergences are bearish signals. Also, gold stocks should ideally lead gold in order to confirm the prevailing trend. They should be strong relative to gold in uptrends and weak relative to gold in downtrends. As you can see above though, not every negative divergence is meaningful. It can even turn out to be a major misdirection, as happened in early 2016. We published a great many posts  on the sector between August and December of 2015, stressing that we felt a great opportunity was at hand. The brief break of support in January 2016, coupled with a negative divergence,  prompted many people to write in and express concern – click to enlarge.

 

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Silver Is Pushed Up Again

This week, the prices of the metals moved up on Monday. Then the gold price went sideways for the rest of the week, but the silver price jumped on Friday.

 

Taking off for real or not?

Photo credit: NASA

 

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Gold and Silver Divergence – Precious Metals Supply and Demand

Last week, the prices of the metals went up, with the gold price rising every day and the silver price stalling out after rising 42 cents on Tuesday. The gold-silver ratio went up a bit this week, an unusual occurrence when prices are rising.

Everyone knows that the price of silver is supposed to outperform — the way Pavlov’s Dogs know that food comes after the bell. Speculators usually make it so.

 

Stalin regarded Pavlov’s psychological theories as compatible with Marxism and “dialectic materialism”. Soviet psychologists who championed competing concepts were reportedly often declared insane and involuntarily committed to a booby hatch. Pavlov meanwhile kept a secret stash of silver bars under the table in his lab, which his dog had conditioned him to buy (see photographic evidence of this counter-revolutionary activity above). [PT] – click to enlarge.

 

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Silver Gets Frisky

Last week, the prices of the metals had been up Sunday night but were slowly sliding all week — until Friday at 7:00am Arizona time (14:00 in London). Then the price of silver took off like a silver-speculator-fueled-rocket. It went from $16.68 to $17.25, or 3.4% in two hours.

 

March Silver, 30 min. candles. Someone certainly piled in last Friday… – click to enlarge.

 

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